Yesterday’s AGM was very interesting. I’ve written a report on the meeting, but it is 1557 words so ADVFN are not keen on me publishing it here (they prefer it at http://newsletters.advfn.com/deepvalueshares/). Anyway here is some of it:
David Fletcher and the other directors warmly welcomed the four shareholders who turned up to the AGM yesterday.
They were very willing to discuss the important and intellectually challenging issues facing the business. So for about an hour we probed many of the dilemmas that come with managing an organisation such as Fletcher King.
(By the way, it turns out that the board have been reading what I?ve been writing on the company ? so they have probably also seen the bulletin board comments made by others.)
Is the London commercial property market near to the top of a bubble?
This is always an extraordinarily difficult question to answer ? except, of course, with hindsight.
But there are straws in the wind. There is a post-election lull in the lettings market. Also yields are approaching record lows. Or was that 2007 yield levels? (which might be the same thing, I?m not sure). Whatever it is, prices are high.
On the other hand, rental growth for smaller office suites has been going great guns over the last 2-3 years. This fits with the evidence of good demand from both tenants and office buyers in the performance of the Leadenhall Street property in SHIPS14.
A key point of hope is that the supply of new offices is not as great as in the lead up to past peaks.
The people around the table had seen a few London property cycles and, I could be wrong, but I sensed a consensus that we are getting close to midnight here for speculators betting on rising prices, where all turns to pumpkins and mice for those who do not get out before the clock strikes.
However, not everyone in the property game, or those supplying services to those investing in property, needs a rising market to make a living (for example, we?ve done fine in Leicestershire with a flat market).
There are many working at FK who collect fees for looking after clients (collecting rents, doing rating appeals, valuations) whether the market is in an up-phase or is down. I pointedly asked what profits were like in 2009 and 2010. In both cases revenues were in the ballpark of £3m and underlying profits were made. This is a very conservatively run company, strong enough to cope with recession.
However, the icing on the cake for a business like this is say when a number of banks ask for FK property valuations so they can lend to investors keen to buy, or when fund managers (e.g. pension funds) are enthusiastic about investing in London property and need various services, or when investors are keen on piling money into SHIPS for FK to charge a management fee.
Other issues discussed:
The dilemma of paying enough to retain rainmakers.
How much to invest in SHIPS?
Growth through acquisition?
What about other routes to growth?
Quality of management?